Understanding Fannie Mae Revolving Debt and Credit Access

Fannie Mae revolving debt can be a bit tricky to understand, but it's essential to grasp the concept to navigate your finances effectively.

Fannie Mae considers revolving debt to be any debt that allows you to borrow and repay funds multiple times, such as credit cards, home equity lines of credit, and personal loans.

Revolving debt can be a double-edged sword - on one hand, it provides flexible access to funds, but on the other hand, it can lead to overspending and accumulating high-interest debt.

The credit access aspect of revolving debt is crucial, as it can significantly impact your credit score.

Prior to closing, Fannie Mae has updated its Selling Guide to reflect changes in how paid-off revolving debt is treated.

Effective immediately, if the balance of a revolving debt has been paid down to zero before settlement, the Selling Guide no longer requires that the account be closed.

The account may remain open even as the DTI ratio is adjusted to reflect the change in monthly payment.

Lenders may ignore the automatic reminder from Desktop Underwriter (DU) regarding an open account until that feature is removed in a DU release later in 2015.

Here are the key points to note:

Fannie Mae has made it easier for borrowers with paid-off revolving debt. Effective immediately, if the balance of a revolving debt has been paid down to zero before settlement, the Selling Guide no longer requires that the account be closed.

Lenders can now ignore the automatic reminder from Desktop Underwriter (DU) regarding an open account until that feature is removed in a DU release later in 2015. This change simplifies the process for borrowers who have paid off their revolving debt.

The account may remain open, and the DTI ratio can be adjusted to reflect the change in monthly payment. This is a welcome change for many borrowers who have paid off their debt but still have the account open.

Fannie Mae's Desktop Underwriter Version 10.0 is now live, and it's a game-changer for potential borrowers.

This latest update includes the requirement that lenders must begin using trended credit data when underwriting single-family borrowers. Fannie Mae is working with Equifax and TransUnion to provide the data.

Trended credit data allows lenders to access the monthly payment amounts that a consumer has made on revolving accounts, such as credit cards, over the past two years.

This provides a more comprehensive risk assessment, giving lenders more insight into how a borrower tends to pay off their revolving credit lines each month.

Borrowers who regularly pay off, or pay more than the minimum required amount, of their revolving debt are more likely to receive an "Approve" recommendation from DU.

Here's a breakdown of how trended credit data works:

With trended credit data, Fannie Mae aims to provide access to mortgage credit for creditworthy borrowers and help them achieve sustainable homeownership.